Please enjoy this the first ‘Guest Blog’ submitted by Scott Mathew.
The Canada Customs and Revenue agency (CCRA) had introduced Registered Retirement Savings Plan (RRSP), which acts as a favorable retirement tool for the Canadians. Anyone with an ‘earned income’ can make use of the plan till 71 years of age. The RRSP acts as a tax-deferred savings option for the working individuals, which even generates interest if the savings are used as investments. RRSP investments are generally made in mutual funds, GICs, stocks, bonds, and even in real estate properties.
RRSP investments in real estate can be done with the help of a home mortgage. Such investments can yield high returns if done properly. One can easily make use of his own RRSP to fund his mortgage loan, and pay it back again to his RRSP account gradually.
However, to invest in real estate with your RRSP, you’ll need to have sufficient resources in your account to cover your home mortgage loan. You can pay the loan amount gradually back to your own RRSP, according to the loan terms you choose. All other conditions associated with a mortgage loan remain the same though. You’ll need to compare the mortgage quotes to get the best deal on your home loan. Failure to make regular payments will result in foreclosure.
Holding a mortgage within your own RRSP has certain advantages associated with it, as explained below:
- If you invest from your own RRSP savings and pay it back gradually, the interests on the mortgage will accumulate over time. You, as the investor, will be able to keep the interests to yourself only, and won’t need to pay it to other mortgage lender.
- The interest rates will be decided by the investor only. Thus, they can be arranged at the maximum permissible rates.
- There’ll be less risk involved for the investors, since the growth of the RRSP accounts can be foreseen.
Even though you’ll virtually own the mortgage, you won’t be able to reduce the risk factor involved with a home mortgage loan. The bank will have the right to sell off your house to repay your RRSP account, if you default on the mortgage. Besides, a mortgage would need you to make a considerable investment from your RRSP. You could have diversified the amount to be spent on other options.